What is Digg?288 Comments
- Pile, on 10/12/2007, -29/+109The depression is definitely coming.
If you are in debt, you better get out of it soon. Remember, your Republican Congress-critters re-wrote the bankruptcy law so that now if you can't pay your bills, it's MUCH harder to wiggle out of it without losing everything. So this next time around, people are going to be living on the streets, still in debt. And when interest rates go up, the credit card companies are all set to screw you as well. That new universal default clause will trigger all your creditors to nail you to the wall if you miss a payment to any one!
So the scene is set for the rich to get richer and the poor to get poorer. It won't look like the 1930s depression because the news media won't show how many people are suffering -- kind of like Iraq. You'll just be out on the street with noplace to go.. like a Katrina refugee, while you watch rich people drive by in their Escalades.
All because you were a one-issue voter who really didn't pay any attention to politics. Don't worry about it. Go back to playing videogames. - iomegaboy, on 10/12/2007, -13/+74Only those stupid enough to have variable rate mortgages or interest only loans.
- JediPrime, on 10/12/2007, -8/+62Well, when you have a $13 trillion GDP, you have a long way to fall.
- bolerobell, on 10/12/2007, -10/+61@0crabby0,
Please reread the article. The weakness isn't in the stock market, it is in the housing market. Bill Cara opines that if interest rates go up, homeowners with variable-rate mortgages will be unable to afford their homes and will default on their loans, thus causing, simultaneously, a huge amount of suddenly homeless individuals and a huge derth of homes on the market. His belief is that because many mortgage lenders, in recent years, have been willing to give mortgages to higher risk people (so-called Sub-Prime mortgages), that those financial institutions have created a weak link in our economy. Those companies that all of a sudden have to deal with high rates of defaults will, themselves, go under.
A huge change in the housing market would effect financial institutions and large retailers like Home Depot... and the chain reaction occurs.
The Great Depression was started, in large part, in 1929 when the stock market crashed. Law and regulations exist today to help limit that. However, the new weak link is the housing/mortgage market. I don't know if the Fed will ever raise rates past the tipping point. For the last decade or two, they've been very good about utilizing their control over interest rates to keep the economy chugging. Surely they know that the housing market is potential on a precipice, so I don't know that they'd hit the lever that throws us over. It may be inevitable, it may not be. I hope it isn't.
Oh, and anyone who says that this is "leftist feeding frenzy" or "communist status quo" needs to grow the ***** up. - inactive, on 10/12/2007, -3/+48"You gave your federal reserve to private bankers in 1918"
Damn - How could I have been so stupid!?!? - jcarrion1976, on 10/12/2007, -29/+67In a word, yes.
Consider the following:
A. Nearly 60 trillion in debt.
B. A dollar that has lost 40 % against the Euro since 2000... not to mention is worth about 5 cents compared to 1912.
C. A monitary policy that is no longer controlled even by our govenment but rather those we are endebted to ( ie Asia... China Holds over One Trillion excess dollars and is itching to dump it)
D. Huge trade deficit.
E. Massive public debt with no savings. Home equity does not count.
F. Loss of major industries to overseas competition. Loss of creative jobs to overseas competition.
G. Large influx of imported poverty
H. The belief that government can spend it's way to prosperity
I. A overextended military protecting many of our "colonies"
Wake up people. - CraigB12, on 10/12/2007, -20/+54I'm already depressed, as the rest of the citizenry should be.
- NinjaYaddaYadda, on 10/12/2007, -11/+43Uh, we need to hit recession before we hit depression, and we need to get out of our rather strong growing trend before we worry about low growth, much less for recession.
Besides, the Federal Reserve has its interest rates set rather high, so there's plenty of room to change in order to accomodate growth. - Witchboy, on 10/12/2007, -8/+38"Destroyed America?"
Get real, dukeeeeey. I'm pissed off politically for a hundred reasons. But if you think the US and the lifestyle here equates to "destroyed," you've obviously not looked around.
Try using accurate language some time, extremist. - Takami826, on 10/12/2007, -0/+26Again it's people who borrow more than they can afford to pay back, who were already credit risks, probably have racked their credit cards beyond the max, will once again be whining to the government to come help them wipe their arses. It baffles me that people are surprised there is a foreclosure crisis on the horizon. "Remember, payday advance is not a way of life..."
- KDX200rider, on 10/12/2007, -3/+28@iomegaboy
I agree, also what about the fools who refinanced for 125% of the market value of their home. Yikes... - audiowizard, on 10/12/2007, -1/+25Eat your fruits and vegetables, read empowering books, inspire your friends, for every negative comment you think or utter, invent 5 real positives, work hard, and don't give into fear mongers!!! Can't go wrong with that.
= }- - NinjaYaddaYadda, on 10/12/2007, -19/+42@jcarrion
"A. Nearly 60 trillion in [household] debt."
True, that is a problem. But not huge problem.
"B. A dollar that has lost 40 % against the Euro since 2000... not to mention is worth about 5 cents compared to 1912."
A weaker dollar is bad for consumers (importers) but are good for businesses (exporters), because weaker dollar means stronger foreign currency, inviting more buyers of our goods and services. If anything, a weaker dollar puts a positive outlook on our highly-globalized economy.
"C. A monitary policy that is no longer controlled even by our govenment but rather those we are endebted to ( ie Asia... China Holds over One Trillion excess dollars and is itching to dump it)"
And that's a good thing.
"D. Huge trade deficit."
Irrelevant. A weaker dollar should decrease the current-account deficit anyway.
"E. Massive public debt with no savings. Home equity does not count."
The government calculates it stupidly, overlooking social security and 401k savings entirely. That's why you wind up with a "negative" savings rate.
"F. Loss of major industries to overseas competition. Loss of creative jobs to overseas competition."
I can't believe people still hold to this "competition = bad" attitude. Come on, we're in America baby. We're rich exactly because our economy has embraced competition, both internally and externally.
The global economy seeks to find the most efficient use of resources. The more trading partners (in goods and services as well as capital and labor) in the economy, the more natural economic asymmetries in capability and demand which are satisfied. Increased trade with poor countries get them on the ladder of economic progress, making them richer, and we benefit from trade with them any more.
Take a look at some of the BOP (back-office processing) jobs which get sent to, say, India. It ain't hurting American workers because the cost for Americans to do the same jobs would be unfeasably high, which is why the jobs don't exist here anyway. Our businesses become more efficient, increasing real income/wages. It also makes the Indians richer, so they may be mroe useful trading partners in the future. It's win-win.
"G. Large influx of imported poverty"
Eh?
"H. The belief that government can spend it's way to prosperity"
Hopefully that will change, but even if spending ramps up dramatically, it's not a problem we have to worry about for a while.
"I. A overextended military protecting many of our "colonies""
Not important to the economy. - inactive, on 10/12/2007, -2/+24China would be shooting theirselves in the foot. This isn't going to happen
Next scenario, please. - inactive, on 10/12/2007, -6/+28At least the Gays can't marry!
During the elections, I talked with one of my elderly neighbors and tried to persuade her not to vote for Bush. She said, "I don't care, I am just so disgusted at the thought of those gays getting married, there's nothing that would make me not vote for Bush."
A couple of days ago, she was complaining about the rise of her insurance costs, prescription costs, gas pricess and that her son's job was outsourced and he would have to sell his home. I looked at her and said, "Well, I'm sure the fact that gays can't marry makes it all worth it."
She just looked at me, went into the house and slammed the door!
I'm glad the old bitch got what was coming to her as will a lot of other fvckers that thought stopping queers from getting married was more important than getting that stupid prick out of the White House! - meltingrobot, on 10/12/2007, -5/+26@dukeeeey
I hope somebody disconnects the internet from your underground fallout bunker. Talk about crazy conspiracy theorist... - Ibanezfoo, on 10/12/2007, -3/+20I doubt it, but hey, thanks for the fear mongering!
- inactive, on 10/12/2007, -3/+17America's national debt is far from being out of control. It is less than other developed countries such as Canada, Japan, Germany, Italy. It is the same as France's.
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
And if you go back into history, public debt in the USA is less than it was when Eisenhower took office. - bobcrotch, on 10/12/2007, -3/+16No but with all the fear mongering and alarmism thats running rampant through the media it sure might seem that way.
- tkstock, on 10/12/2007, -6/+19I think you mean "unlikely"
Most economic indicators say we have a strong economy right now. Unemployment is at a multi-year low. I think it's unlikely that we will even go into a recession, so going into a depression is even less likely.
Everyone here is gauging the economy based on the stock market - don't be so naive. The stock market doesn't represent the broader economy. - Witchboy, on 10/12/2007, -2/+14Um, financially speaking, I think we've done all right, pcjunkie.
- krebcycle, on 10/12/2007, -2/+14That's silly. China doesn't want to "call in our debt". We don't "owe" them money. They have simply invested in US property hedge funds, mostly initially invested in by FNMA. This money is constantly moving hands; they're constantly buying and selling US "property". They own a lot of dollars too, but this is by no means stationary.
China's currency's value, and indeed, their whole economy, is tightly integrated with the US's. If they were to do something to destabilize our economy, they would be one of the first countries to take the first hit as the world economy destabilizes to account for the disturbance. - Manhigh, on 10/12/2007, -0/+12Sounds like someones trying to spread some fear to boost the value of their gold investments.
- SkippyDoorknob, on 10/12/2007, -3/+15PANIC!!!!!!!!
- armynixon, on 10/12/2007, -2/+14The sad state of economic affairs in the US is not entirely the fault of the banks. Consumers have consistently been living beyond their means and off of credit.
With the continual devaluation of the US dollar, massive trade deficits and China poised to decrease purchases of US T-bills in favor of putting $1T in the market, an American recession does seem inevitable. A depression seems unlikely though. - MDrake, on 10/12/2007, -1/+12I was mislead by the title. I was thinking, "Of course America is headed for a depression, I don't think I've ever seen a more superficial generation of people."
- jav1231, on 10/12/2007, -30/+41How dare you not help whip the socialist status quo (read: diggers) into a leftist feeding frenzy!
- davesbrain, on 10/12/2007, -10/+21@0crabby0
ENRON's financial reports were glowing reviews of how well the company was performing, right up until they went bankrupt. - lpcustom, on 10/12/2007, -1/+12that's a lot of dukey
- 3tcp, on 10/12/2007, -6/+17The author is grasping at straws. Interest rates won't ever reach the point where what he's talking about will happen because the fed is too smart for that. Furthermore, he exaggerates the consequences that the housing market will have on the national economy.
The graph about the percentage of loans in 2005 is misleading, 20% of new mortgages were subprime but only 4% of total mortgages are subprime.
The only way the housing market will affect economy performance is that consumers will spend less when they feel like their house isn't gaining value. People's propensity to save their income is lower when the value of their house increases because a more valuable house is pretty much like unrealized savings. Home prices are stalling and that will cause consumption to fall causing slowing economic growth, not doomsday catastrophe or depression. - inactive, on 10/12/2007, -3/+13People in general don't get it. It's not just America.
- inactive, on 10/12/2007, -2/+11Who is Bill Cara, and this is from the opinion section. It's not touted as fact or anything. Haven't we heard this before?
- bolerobell, on 10/12/2007, -3/+12@jdun,
We aren't talking about one or two small companies. We are talking about some of the largest lenders and banks in the country, like Wells Fargo, Citibank, Washington Mutual, etc. And housing is not an isolated industry. If people stop buying houses, they stop buying lots of housewares from Target and Walmart. If people stop buying new housing, contractors stop buying materials from Home Depot and Lowes. Between Walmart and Home Depot alone, we are talking about the two largest retailers in the World. If a mass of people suddenly go into default, then because of their financial instability, they become a larger employment risk, thus making it harder for them to keep or find a job.
The housing market is intimately tied into nearly every other major industry in America, by virtue of the fact that everyone needs a place to live. Please try to understand the interconnectedness of the various industries in America.
@darkstar949,
Do you really see a difference between buying stock with 90% of funding from bank loans and buying houses with variable rate mortgages where you initially only pay on the interest instead of the principle? Oh, and the issue here isn't having an overabundance of housing. The issue here, as described by Bill Cara, is that as interests rates go up, more and more people will be forced to default on their homes and become homeless because they can't afford their mortgage payments because they got variable rate mortgages that have payments that go up as interest rates increase. (Personal anecdote: A coworker of mine and her husband bought a home 4 years ago, and because they weren't paying attention, they ended up with a variable rate mortgage. Because interest rates have gone up over the last 3 years or so, their mortgage payments increased so much so that they couldn't afford their house payments. They were forced to sell the house and they ended up moving into an apartment.)
Thing worked out for my coworker because she was able to sell her house. If this starts happening on a more massive scale, that would be harder, as there would be an oversupply of houses on the market because everyone would be trying to sell all at once. If you can't sell your house and you can't afford the payments, then you default.
Also, please note, I don't necessarily agree with Bill Cara, I'm just trying to explain his article. I don't think the Fed will let things get too far. - IEatHamburgers, on 10/12/2007, -8/+17Yeah, this would work out well.
China on phone with Bush: "We want you to pay up and pay up NOW!"
Bush: "OK, hold on a second." *turns and orders Joint Chiefs to target Chinese banks with ICBM's*
China: "All right, all right, we'll go bully Canada"
Or my personal favorite:
Chinese ambassador: "You pay now! NOW!"
Bart Simpson: "What happened to you, China? You used to be cool."
Chinese ambassador: "Hey, China still cool! You pay later, LATER!" - hackwrench, on 10/12/2007, -1/+9dukeeeey, your post started out interesting, but you began to lose me at the "illegal income tax" paragraph and lost me completely at the next paragraph.
- Cynoclast, on 10/12/2007, -1/+9Speculative headlines always get dugg down. Rule of thumb: If your headline ends in a question mark, it isn't news.
- betterth, on 10/12/2007, -3/+10I know right. I love the idea that China would intentionally call in the debt, which would "destroy our economy", and then they'd lose the biggest importer of their goods. With the 60,000 new factories last year, a strong amount American companies shipping to America, they'd lose hundreds of thousands of jobs when we stopped importing. It would wreck their own economy.
- audiowizard, on 10/12/2007, -0/+7The stock & real estate market is only reeling from the effects of all the "get-rich-quick" people who thought they were going to make a killing in it forever.
Enjoy the ebb and flow of life, take heart, and fret not young grasshoppas. - inactive, on 10/12/2007, -2/+92004: WOW! $750,000 for a 900 sq ft house! What a bargain! I'll take out an interest only mortgage for a cool Mil, and put in $200,000 worth of upgrades and sell it for $1.5 billion! YAAAAY
2009: WOW! You mean my piece of ***** tiny house cost me the same as 10 houses in a normal part of the United States, and those 10 houses would have 20 times the square footage total? Where's my gun. I need to kill myself. - catalysis, on 10/12/2007, -1/+8Adjustable rate mortgages are fine. The real problem is using one to buy an overvalued property. If you pay $300k for a house and, a few years down the line when your rate goes up, no one wants to pay $300k for it, you're screwed. When buying, you can't just look at supply and demand (i.e. what "everyone else" is paying), you also have to look at the real value of the property and realize that in a booming market, someone will be left holding it when it tops off...and it will always top off somewhere. Then, in that case, your ARM will screw you but you have already lost anyways.
- inactive, on 10/12/2007, -16/+23And the diggers that are anti-america are salivating at the possibility.
- brokekneck, on 10/12/2007, -9/+15Well, sometimes people get forced into those types of loans. For instance, they may need money fast for medical bills, they have bad credit. So what do they do? They go that route and try to refinance a year or two down the road when there credit is better.
- gregrich, on 10/12/2007, -0/+6Umm lets see we have a crazy housing market + low interest rates + people with bad credit + variable rate mortgages + increasing interest rates = a bunch of people that should not have purchased a house in the first place
I feel sorry for people that people that will loose there homes but these are the things that you bring onto yourself. If you can't afford it don't buy it; if you can only afford a $250,000 house thats the one you buy, not the $400,000 one with a variable rate mortgage. Keeping up with the Joneses is not the way to live, can't afford a Mercedes don't buy it, get a Hyundai. If you really want the Mercedes or the $400,000 house work your ass off for a few years, but don't go and dig yourself a hole that you can't get out of then come crying to me. - betterth, on 10/12/2007, -2/+8So because some houses on your street foreclosed, the end is nigh, China is on our doorstep and our currency will have failed in a decade?
I mean, making these claims, you have evidence right? No?
Or maybe you're a tenured professor of economics? No?
Perhaps you have a basic high-school level understanding of macroeconomics? No?
Perhaps you should stfu. - Y0tsuya, on 10/12/2007, -0/+6You know why some people are rich and why some are poor? Because rich people are not stupid with their money. The stock market bubble in 2000 caused a lot of stupid greedy (read wanna be rich) people to lose their shirts. The Fed should have just left it well alone, but NO, they had to turn on the credit spigot and flood the market with cheap credit. That created a real estate bubble where people who wanted "money for nothing" was loving it. If the Feds wanted more consumer spending, they got it. Homeowners who saw their home "value" shoot up are bombarded with ads telling them to "liberate" their home equity. They did, turning paper value of their house into debt that must be repaid, mostly with variable interest rates. It also created a vicious cycle of higher home prices begetting looser credit begetting higher home prices. People were led to believe that real estate prices could only go up indefinitely at double-digit rates, creating a buying frenzy. In the last stage (2005-2006), those who really cannot afford to buy does so anyway they could by using exotic mortgages, which further pushed up prices by upping the "comp" for their neighborhoods. We were at near 0% affordability in some markets in that time frame.
It's pretty when I watch HGTV or TLC where they show people who bought in the past few years found they were sitting on 100Ks of paper wealth. They were ecstatic, but in a few years that paper gain would evaporate into thin air where it had came from.
Those who ridicule people who warn about this take heed. The last housing bust (89-95), while painful to many, will be mild compare to what's coming up. That's because houses back then cost less so there's less to fall. And back then people don't use exotic mortgages so they aren't in as much risk of bankruptcy. The last bubble was also relatively isolated to coastal areas, while the current one is of a national (though mostly urban/suburban) scale. Businessweek had a "map of misery" published in 2006 showing % of new loans with option-ARM:
http://www.businessweek.com/common_ssi/map_of_misery.htm
That map doesn't even count regular ARM and interest-only, which together with option ARM easily comprises the majority of new loans in in some markets since 2003, you know the one that drove prices to insane levels. When prices caused by toxic mortgages hit home prices, expect the I/O and regular ARM people to feel the pinch next. Next in line to get hurt are people who used traditional mortgages but still overpaid for their house and those who took out home equity loans. They will lose money if they sell. Well in the case of home equity loan, they've already spent is so technically they didn't lose that money. They just need to repay it.
The intrinsic value of a home historically tracks wage inflation, because ultimately working people need to service their debts and do maintenance on the house. Their ability to do so depends largely on their income. The current home values are way off the intrinsic mean by several standard deviations, and must be corrected. There are no easy way to solve this. One is to just let the home prices fall back to where people can afford it (3x household income). Second is hyperinflation. Pick your medicine. - jav1231, on 10/12/2007, -1/+6The functionally sane are a bitch. I mean, they suck you in with semi-lucid ideas then take this huge turn into the bizzarre. You come away thinking, *****! Am I on camera?
- jeylux, on 10/12/2007, -1/+6or, even, if you can afford a $250,000 house, buy a 200,000 dollar house???
0% down is what's killing people
you move out of your parents house. you go to college. you get married the weekend you graduate, you and your spouse get a job for 40k each a year, and poof you think you're just as rich as your parents were....
this is why it's going down hill. And this is why i had to save money for 6 years to put 40% down on my first house... so i wouldn't lose it. - travitherabbi, on 10/12/2007, -4/+9It's "too ***** retarded", not "to ***** retarded". If you're going to call all of us retarded, Akarian, at least do it right. :)
- Meowbiusfox, on 10/12/2007, -2/+7Here's my observation.
I live in an upper middle class section of Los Angeles.
People here have nice homes,yet they work 240 hours a week to pay for
the location and real estate and the enormous property tax.
I look in my neighborhood,and there are significantly more homes
up on the market as there were two years ago and guess what?
They AREN'T selling.It's creepy. - mc7winkie, on 10/12/2007, -1/+6@ dukeeeeeeeeeeeeeeeeey
The first half of your rant made SOME sense. Not so much the second. So I was forced to digg you down. -
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